Can you accept donations without 501c3

Can these donations be "forwarded" to a charity without being treated as personal income?

My question is how US tax laws apply in a somewhat complex situation. You are not my lawyer and this is not legal advice but I am not finding any relevant IRS rules here at all and I know some must exist somewhere so I would appreciate any pointers if I just want to better understand how to think in the first place about that kind of situation.

So first, let's say I decide to do an informal fundraiser to raise money for a charity. For example, I give my friends the hat and tell them to raise money for the United Way. Then I take the money and send it to the United Way as a single donation. There are two ways you could think about it: Option 1 is for me to aggregate the money and pass it on, but it's really never mine - I just act as my friends' agent. Option 2 is that there are two separate transactions: first I take money as income and then I donate it. In the latter case, we have a problem: now I owe additional income taxes and have to use some of the money to pay them instead of giving it to the charity.

Question 1 : I believe, but I am not sure, that "Option 1" is the more sensible way to think about it and that I am in this situation no owe additional income taxes. Is that right?

Okay, this is the simplified version - the real situation is a little more complicated. A group of people have been working on a project that is in the public interest but loosely organized as individuals, with no sort of legal not-for-profit organization. One person then organizes a fundraiser to support this project, originally intended to treat it informally as an individual and just accept the income tax hit - but then the fundraiser is much (much) more successful than expected and suddenly we see thousands of dollars in Taxes. This makes us realize that we really need to be more organized on this project, and so we have established a tax sponsorship relationship with an existing 501 (c) (3) that can now accept donations for this project.

Question 2: Is it possible for the person who ran the fundraiser to take the donations last month, and give them up to the non-profit without having to take an income tax hit along the way? This situation is similar to the one above in that everyone who donates understands that they have donated to support a specific charitable project. It's just that at the time the funds were raised, the project didn't exist as a separate legal entity.


Edit: Since it looks like my wording was confusing, here's another way to put it:

Scenario 1: I came up with an idea for a cool project and set out to implement it as a normal person. Some other people think it's cool too, so donate me money to make it happen. Think about your average Patreon. Here this money is clearly personal income and I obviously owe income tax.

Scenario 2: I have the idea for a cool project, I present it to a non-profit association according to 501 (c) (3) and they agree that it should be taken over as a project. If people want to donate money to make this happen, they can do so by giving the money to the nonprofit, which gives the donors a tax break and I avoid having to pay income tax (as the money is used for this) the non-profit organization instead of going to me).

Actual scenario: let's take at, we start in scenario 1 and then switch to scenario 2. Can we use the money donated to me as an individual before I like the relationship with the non-profit organization build up , to the non-profit company redirect ? -profit so I can't pay income tax on the money and our donors get a tax break?Why or why not?

Dilip Sarwate

My goodness! Have people write checks to the charity and toss them in the hat you pass around. Oh wait, I forgot. People don't write checks anymore, do they?

lb

@ DilipSarwate Exactly. There is no benefit in being in the middle of the donation.

Nathaniel J. Smith

Yes, of course it would have been better not to get into this situation at all. As with many others on this website, this is about options for recovery from a failure.

lb

EVERY company can be run as a non-profit organization for more than free. Amazon did this. You were sole proprietorship, yes? Do you get W-2 for that money? No, that means you are not an employee. That means you ran a business. You have expenses related to your earnings that happen to be 100% of your earnings. So you have no tax burden (unless you come across a potential gross income tax rule in your state, which is very unlikely). They make this terribly difficult. Nobody gets your question wrong.

Aganju

There are two simple ways to avoid the problem:

  1. They keep the money separate from your own (so don't put it in your checking account or physically mix it with the contents of your wallet), keep a record of the amounts that come in and go out, and declare (in your head) that You act as an agent. The money was never yours, as expected, so no tax consequences. The IRS probably wouldn't have a problem with this as the money was never legally yours.
  2. Alternatively, if you are looking at it as income, you can deduct your charitable contribution from your income and since they are both equal it will offset each other. If you do not collect any amounts in the range of your annual income, there will be no problems with that either.

I think you are overly concerned about the subject. Nobody would try to claim that this is "income". If your boss asks you to get his laptop from the other room and you get it for him, do you get a gift of a laptop for 20 seconds for tax purposes and then give it back to him? No, you are simply managing assets for someone who is not yours.

lb

Nonprofits are not really about taxing the organization, but rather about the tax break for donors.

Joe donates $ 1,000 to you. If you're a nonprofit, Joe may be able to deduct that $ 1,000 from his taxes. You get that $ 1,000, you have charitable mission-related expenses, you spend them. You have no tax charge in relation to the $ 1,000.

Nathaniel J. Smith

This does not address the question at all. The question is whether the person who collects the donations and then passes them on to the organization owes income taxes. (Although in the case where the final recipient has status 501 (c) (3), it is also an interesting question whether the original donor will get the tax break.)

lb

It answers the question. You want to be in the middle of a donation and are concerned about your own taxation. Organizations only pay taxes on income minus expenses, you take on $ 1000, you spend $ 1000, you have no tax burden. + $ 1000 donation - $ 1000 expense (because you donated it) = $ 0 income. It's no different than if you're a computer repair shop that made $ 1,000 but spent $ 1,000 on rent. That answers your question. However, now donors lose their tax deduction and donations are less efficient because you have costs related to your organization.

Nathaniel J. Smith

I'm pretty sure, that "if you take out $ 1,000, spend $ 1,000, have no tax charge" does not generally apply to individuals, and that question concerns the taxation of an individual.

lb

One-man business. They make this path more complex than it has to be.

Nathaniel J. Smith

Ahhh now I understand what you mean. Right, depending on how the money is being spent, the person may be able to treat part of it as a business expense. If my research is correct, it does not apply to charitable giving. So if they pass the money on to the 501 (c) (3) they still have to pay the self-employment tax on everything and the income tax on the 501 (c) (3) amount below the standard deduction (more or less). However, if they spend the money directly on expenses related to the project, they can treat this as a business expense and avoid all of these taxes.